Motor Finance Redress: How the FCA’s Consultation Exposes a Regulator Unfit for Purpose

Motor finance was supposed to be simple: you pick your car, sign the PCP or HP, and get on with life. Instead, millions of drivers are now caught up in the UK’s latest mass mis-selling saga, with the FCA itself estimating that around 14.2 million motor finance agreements between 2007 and 2024 were “unfair” because of the way commissions were structured and disclosed.

After years of court battles, culminating in the Supreme Court’s motor finance judgment in August 2025, the FCA has finally produced its long-trailed consultation paper, CP25/27, on a motor finance consumer redress scheme.

Let’s not forget that unfair commission structures within motor finance was brought to the attention of the FCA in 2016, and it has been asleep at the wheel (again) until such time as consumer representative firms forced the hand of the FCA.

1. How we got here – and what the courts actually said

For years, many car dealerships were paid commissions by lenders when they introduced customers to PCP or HP agreements. In the notorious discretionary commission arrangements (DCAs), dealerships could increase the interest rate the customer paid in order to pocket a bigger commission – a conflict of interest that was rarely, if ever, properly explained. The FCA finally banned DCAs in 2021.

In October 2024, the Court of Appeal held that undisclosed commissions without fully informed consent were unlawful, dramatically expanding the potential scope of claims and raising estimates of lender exposure to as much as £44 billion.

Lenders appealed. In August 2025, the Supreme Court clarified the legal position and confirmed many commission structures to be unlawful.

2. What a strong regulator would have done

If you imagine a genuinely muscular regulator faced with:

• millions of mis-sold agreements,
• years of clear industry conflicts of interest, and
• a Supreme Court judgment confirming that at least some of these commissions created unfair relationships,

…you don’t picture a 360-page “please send us your thoughts” exercise.

A strong regulator would have:

1. Taken the Supreme Court judgment and moved immediately to implementation, not yet another round of soul-searching. The FCA had already spent over a year gathering data from lenders and signalling that a redress scheme was on the table if the courts confirmed widespread harm.
2. Set a clear, simple redress formula aligned with the legal position – for example, refunding the unfair extra interest plus meaningful compensatory interest based on the time value of money and the distress/inconvenience caused.
3. Preserved the long-standing norm of 8% simple compensatory interest (or something very close to it) that has applied across countless mis-selling cases and FOS awards, rather than slicing that benefit down at the very moment it matters most.
4. Announced fast, binding timelines for firms to compensate customers, building on the legal position that the majority of firms did not comply with the law or its disclosure rules when they sold these loans.
5. Paired the scheme with visible enforcement, reserving the option of serious fines where firms had knowingly structured products around opaque, high-margin commissions.

That’s what a regulator looks like when it’s prepared to be unpopular with the industry it polices.

3. What we actually got: delay, dilution and deference

Years of drift and endless “pauses”.

This scandal didn’t appear overnight. The FCA has been aware of the issues for nearly a decade.

Once the issue finally blew up publicly in 2024:

• In January 2024 the FCA launched work on historic DCAs and paused complaints timelines so firms didn’t have to answer affected complaints while the review dragged on.
• That pause was then extended to December 2025, and broadened to cover all commission-related complaints, meaning lenders could sit on customer cases for the best part of two years.
• After the Court of Appeal ruling in October 2024, the FCA postponed its decision again, citing data delays and ongoing litigation.

Only in October 2025 did the FCA finally publish CP25/27, proposing a scheme that will not actually pay most consumers until late 2026 at the earliest.

In December 2025 the FCA extended the pause to May 2026, the date when lenders must commence issuing decisions.

Meanwhile, consumers have kept paying inflated interest, and complaints have piled up in limbo.

A consultation shaped around industry comfort

Even now, the FCA has extended the consultation deadline at the request of stakeholders, including major lenders. The regulator says it must weigh:

• the size of the bill,
• the operational strain on lenders and captive finance arms, and
• the risk that “over-correction” could harm the availability of credit.

The markets confirm that the narritive from lenders that fair compensation will damage the industry are completely false, yet the FCA continues to dance to the tune of the finance sector. The net effect is a process that is designed to ensure that lenders are never genuinely concerned of their regulator.

4. The quiet gift to lenders: slashing compensatory interest

The most telling detail in CP25/27 is also one of the driest: compensatory interest.

Historically, when customers receive redress for mis-selling, they are often awarded get 8% simple interest per year on top – the same rate courts generally award.

In this scheme, the FCA proposes something very different:

• Interest will be paid at the Bank of England base rate +1%, averaged over the period – which, on the FCA’s own numbers, works out at a weighted average of about 2.09%.

On paper that sounds technocratic. In practice, it is a huge financial win for the firms that benefitted from the mis-selling in the first place to the tune of an estimated £4 billion.

It’s no surprise that consumer groups and claimant firms have criticised the proposal as a slashing of statutory-style interest, especially given the long delays in getting to this point.

5. Letting lenders mark their own homework

There’s another serious structural weakness in the FCA’s design.

Under CP25/27, lenders will:

• run their own reviews across roughly 14 million unfair agreements,
• apply an FCA-prescribed but heavily assumption-driven model, and
• be able to reject claims on certain assumptions, and
• decide what each customer is owed – with limited scope for independent scrutiny unless the customer complains or goes to the Ombudsman.

A cross-party group of MPs on the APPG on Fair Banking has already warned that this amounts to letting firms be “judge and jury” over their own misconduct, with average payouts under the FCA model significantly lower than court awards in similar cases.

Their report accuses the FCA of favouring lenders’ profit margins and underestimating the true scale of harm by relying on outdated or conservative assumptions.

When the regulator designs a scheme in which:

• the same firms that mis-sold the products run the calculations,
• the interest rate is cut to a fraction of what consumers usually receive, and
• there is no accompanying programme of meaningful fines specifically for this misconduct,

…it’s hard to pretend this is a truly deterrent response.

Yes, the FCA has fined firms in other areas. But in the motor finance scandal, the centrepiece is a carefully calibrated, industry-friendly scheme rather than a fearless use of its enforcement toolkit.

6. This isn’t a one-off – it’s a pattern

If this all feels familiar, that’s because it is.

• In PPI, the FCA eventually presided over more than £38bn of redress – but only after years of dragging, a Supreme Court judgment (Plevin) and a complex compromise scheme that still left many consumers under-compensated.
• In the interest rate hedging products (“swaps”) scandal, the FCA’s redress framework excluded “sophisticated” SMEs, a decision later criticised as irrational and unfair to many businesses that plainly didn’t understand the risks they were sold.
• In the wake of LCF, Connaught and other investment scandals, an All-Party Parliamentary Group spent years reviewing the regulator and concluded it was “incompetent at best, dishonest at worst”, calling for radical reform.

Now, on motor finance – sometimes described as “PPI on wheels” – the same accusations are resurfacing.

Even parliamentarians who are generally pro-markets are losing patience. MPs and campaigners have openly argued that the FCA’s handling of the motor finance saga, stretching back years, shows it is “not fit for purpose”.

When MPs, consumer groups, claimant lawyers and sections of the industry all agree that a scheme is flawed – it’s usually a sign that the underlying design is political rather than principled.

7. “Unfit for purpose” – and what that actually means

Saying the FCA is “unfit for purpose” isn’t just an angry slogan. It reflects something deeper:

1. Structural dependence on the firms it regulates
   The FCA’s whole model is built on firm-led remediation: the idea that if you nudge, consult and guide, banks and lenders will voluntarily clean up their own mess. Time and again, that has proved optimistic at best.
2. A chronic fear of rocking the boat
   From its warnings that the Court of Appeal ruling “went too far” and could destabilise the market, to its public insistence that compensation “must not put lenders out of business”, the FCA approaches systemic mis-selling as a capital-management problem for banks, not primarily as a justice problem for consumers.
3. Endless process where urgency is needed
   The regulator has had years to understand this market. It chose to pause complaints, wait for multiple rounds of litigation, then launch a consultation that will not deliver most payments until nearly a decade after many of the worst abuses took place.
4. A consistent pattern of under-compensation and narrow deterrence
   Whether it’s PPI, swaps or now motor finance, the story is similar: partial redress, complex eligibility hurdles, and little in the way of structural penalties that make future misconduct genuinely unattractive.

Given that history, it’s hard to escape the conclusion that the FCA, in its current form, is not capable of standing up to the largest banks and lenders when it matters. And that’s exactly what a regulator is for.

8. Where does that leave consumers?

None of this means people won’t get money back. If the scheme goes ahead broadly as proposed:

• around 14 million agreements are expected to be treated as unfair,
• average compensation per agreement is forecast at just £700, and
• total industry costs (including admin) are estimated at about £11bn, making this one of the largest redress exercises in UK history, but lenders will still walk away in profit as the current scheme stands.

For an individual motorist, a £700 cheque in 2026 may be extremely welcome. That’s entirely understandable.

But zoom out, and a different picture appears:

• Firms that, by the FCA’s own admission, did not comply with the law or its rules will have enjoyed years (even decades) of extra profit.
• The interest slice of compensation is being quietly shrunk to a level that bares no reflection to the loss caused to the consumer, let alone acts as a deterrent.
• And the regulator is once again trying to close down a scandal without confronting the deeper question: why does this keep happening?

Until the FCA is either fundamentally re-engineered or replaced with something genuinely independent of the industry’s lobbying power, UK consumers will continue to move from one scandal to the next – PPI, swaps, mini-bonds, motor finance, and the upcoming GAP insurance scandal.

For a watchdog meant to guard the public from systemic financial abuse, that really is unfit for purpose.



Financial Ombudsman Service: Is the Watchdog Itself Under Investigation?

For years, consumers have been told that the Financial Ombudsman Service (FOS) is the independent, trustworthy referee standing between ordinary people and powerful financial institutions. It’s sold as the place of last resort, the body you turn to when a bank, lender or finance company has failed you.

But what if the referee isn’t just missing obvious fouls, what if the whole match is being run on a pitch tilted against consumers?

In light of mounting evidence, historic investigations and recent parliamentary criticism, it’s no wonder many people now ask whether FOS is truly fit for purpose or whether something far more troubling is going on behind the scenes.

The Dispatches Investigation That Shattered the Illusion

The glossy PR image of FOS took a huge hit back in 2018 when Channel 4’s Dispatches sent an undercover reporter into the organisation. The footage painted a bleak picture:

• Staff admitting they didn’t properly understand the financial products they were deciding on
• Case handlers under pressure to reject complaints or “go with the lender”
• Serious concerns that consumers were being let down by a culture that prioritised speed and numbers over fairness

The scandal was so serious that FOS’ board commissioned an “Independent Review”, led by Richard Lloyd who was paid by the FOS for carrying out the review! That review accepted that many staff were not equipped to deal with complaints and highlighted issues with training, quality control and case handling.

At the same time, the Treasury Select Committee and industry bodies demanded answers, and FOS was forced to launch an internal and independent review into standards, alleged bias and training failures.

In other words, this wasn’t a “one-off bad day at the office”. It was symptomatic of deeper systemic structural problems.

Seven Years On: Has Anything Really Changed?

Fast-forward to 2024–25 and the questions haven’t gone away. If anything, they’ve intensified.

Parliament’s Treasury Committee recently scrutinised FOS over the abrupt departure of its Chief Executive and Chief Ombudsman, Abby Thomas. MPs accused the FOS Chair, Baroness Manzoor, of “disrespectful” obstruction after she initially tried to present the exit as a “mutual agreement”, only for documents to reveal it stemmed from a complete collapse in confidence between the board and its CEO.

What is clear is that Abby Thomas was clearly focused on consumer rights and representation, which makes her departure all the more damning of the under-fire organisation.

When the very organisation that’s supposed to provide transparency and fairness in financial disputes is itself criticised by MPs for a lack of transparency and obstructive behaviour, it sends a clear warning to the public?

At the same time, the UK Treasury has launched a review of FOS, amid concerns from industry that it has been acting as a “quasi-regulator” and applying today’s standards to past conduct – while consumer groups argue that even now, FOS is still failing too many people and getting far too much wrong.

Alongside this, campaigners and consumer advocates have been compiling dossiers of systemic failures: mishandled complaints, bias towards firms, and repeated examples of consumers being left high and dry by decisions that simply don’t stack up against the evidence.

Maladministration – Not Just “Human Error”

Let’s be clear: any large body will make mistakes. But the picture that has emerged around FOS goes far beyond the odd administrative slip.

The Independent Review following Dispatches found:

• Staff not properly trained for the cases they investigate
• Weaknesses in quality assurance and oversight
• Inadequate handling of certain types of complaints – the very matters where consumers most need protection

Meanwhile, FOS’ own recent data shows it received over 300,000 new complaints in 2024/25, the highest level in six years, and yet it only upheld around 34% in favour of consumers.

When you combine:

• Historical evidence of poor training and flawed case handling
• Ongoing stories of consumers being fobbed off
• Parliamentary criticism of FOS’s leadership and accountability

…it becomes increasingly difficult to write this off as accidental or isolated. Many would call that systemic maladministration, poor leadership and under qualified staff.

Corruption and Collusion: Rumours That Won’t Go Away

For years, frustrated consumers and campaigners have whispered – and sometimes shouted – about corruption and collusion within FOS.

These words seem very strong, but look at the pattern:

• Undercover footage suggesting staff were nudged towards siding with banks and lenders
• MPs condemning FOS’ leadership for obstructing scrutiny over its own governance and leadership crisis
• Long-running complaints from consumers who feel the Ombudsman has simply rubber-stamped the firm’s position, even where evidence clearly supports the consumer

In that context, it’s not hard to see why rumours of corruption and collusion persist, and why many ordinary people feel those rumours might not be entirely fanciful. When a dispute-resolution body repeatedly behaves in ways that look biased, opaque or self-protective, public trust doesn’t just erode; it collapses.

Lifting the Lid: Our Freedom of Information Request

The Freedom of Information Act 2000 applies to FOS, and anyone can request recorded information about how it operates. FOS even publishes FOI guidance and statistics acknowledging its obligations and the need to improve timeliness and compliance.

There have also been ICO decision notices examining how FOS handles FOI requests, including instances where the Ombudsman’s reliance on cost-limit exemptions has been scrutinised.

Given the scale of concerns, we have now submitted a detailed Freedom of Information request to FOS. Our aim is simple:

• To obtain hard data on case outcomes, staff training, internal guidance and potential conflicts of interest
• To understand whether incentives are offered to reject complaints
• To shine a light on whether staff are targeted on closing complaints within set timescales

If FOS truly has nothing to hide, it should welcome the opportunity to demonstrate that its processes are robust, fair and transparent. If, on the other hand, we encounter resistance, delay, or evasive responses, that will speak volumes.

Why Consumers Should Think Very Carefully Before Trusting FOS

FOS likes to present itself as a free, fair and independent alternative to the courts. In theory, that’s exactly what consumers need.

But when you put the pieces together – the Dispatches revelations, the Independent Review’s findings, parliamentary criticism of its leadership, and the ongoing questions about culture, governance and transparency – it becomes increasingly difficult to justify any faith in this organisation.

The service as it stands is causing more consumer harm than good, and it is little surprise that consumers and consumer representatives are now looking to the courts for justice rather than the Ombudsman

We will continue to investigate FOS, pursue answers through Freedom of Information requests, and shine a light on behaviour that undermines consumers’ rights.

Until FOS demonstrates, with evidence, that it is truly independent, transparent and accountable, consumers are right to question and withhold their trust.



The FCA insists its motor finance consumer redress scheme is still at the consultation stage. It tells the market it’s “seeking views”, that nothing is final, and that it’s open to changing the design.

But today, we’ve seen something that makes that claim look increasingly hollow as we’ve received multiple Financial Ombudsman Service (FOS) decisions already treating the FCA’s draft “tipping point” commission levels as if they were hard rules.

In other words, while the FCA says, “Tell us what you think,” FOS appears to be acting on the assumption that the FCA has already made up its mind.



Twice Hit by Discretionary Commission: How GAP Insurance Got Caught in the Crossfire

Many people have now heard of discretionary commission arrangements (DCAs) in motor finance, the unlawful and hidden setup where dealers could quietly tweak the interest rate on a motor loan and pocket more commission when the customer paid more. The FCA has called this out and banned it in motor finance from 2021, albeit five years after it was brought to it’s attention.

But there’s a story nobody has really considered….YET:

What if GAP insurance was being hit by discretionary commission twice – once inside the GAP product itself, and then again when that inflated premium was rolled into a motor finance agreement that also used a DCA?

That is exactly the risk we’re seeing in real cases, and it should alarm anyone who cares about fair value (the FCA!).

The GAP supply chain: five bites at your premium

GAP insurance is a simple product, but it often involves a whole chain of parties, each taking their slice of the total cost to the consumer:

• Underwriter / manufacturer – the insurer who ultimately takes the risk and sets the net price.
• Administrator – designs the scheme, handles claims and paperwork.
• Distributor – sits between the manufacturer and the retailer, shaping how the product is sold.
• Seller – usually the dealership sat in front of you in the showroom.
• Lender – if the GAP product is added to the finance agreement, the finance provider charges interest on it.

In 2024 the FCA raised serious concerns about fair value within GAP products. It has highlighted that only a tiny percentage of GAP premiums are paid out in claims (6%), while a significant, and often majority proportion being swallowed up by commission and other distribution costs. Compare this with home insurance (50%) and motor insurance (65%) and the issue is clear.

So even before we start to talk about DCAs, GAP is already an add-on with a long history of poor value and heavy commissions.

Our evidence: discretionary commission inside GAP itself

We have documentary evidence directly from a GAP product administrator that takes this a step further.

In the documentation we have on file, the seller (dealership), was explicitly allowed to set its own commission within a cap. The structure works like this:

• The manufacturer sets a net price for the GAP policy and carries out a fair value assessment that is shared with the chain thereafter.
• The administrator adds its commission, as does the distributor.
• The seller (dealer) is allowed to set its own commission within a cap, set by the administrator or distributor.
• The difference between net price and selling price is effectively in the control of the dealership, and it must satisfy itself that the end cost still represents fair value to the consumer.

This is a discretionary commission arrangement inside the GAP product:

• The higher the price the dealer charges for GAP,
• the more commission or margin they earn,
• and the less value the customer gets for every pound they pay for the product.

We have already submitted this evidence to the FCA, making it clear that this requires immediate attention and intervention given it is now beyond any reasonable doubt that the culture of mis-selling within motor finance went far beyond the actual motor finance agreement itself.

When the GAP premium is financed… and the motor finance agreement has a DCA too

On its own, discretionary commission in GAP is bad enough. But in many cases, the damage doesn’t stop there.

GAP is typically sold alongside a motor finance agreement and often rolled into the motor finance agreement itself, whether stated directly on the agreement or included within the ‘Cost of Goods’.

Now imagine this:

Stage 1 – GAP DCA

• The net cost of the GAP premium from the manufacturer is set at £50.
• The administrator and distributor both add a further £25 each, taking the cost to £100.
• The dealership is allowed to set the retail price up to a maximum of £350.
• The dealership sets the price at the maximum £350, and pockets the £250 difference as commission/margin.
• The GAP product is already loaded with discretionary commission at this first stage.

Stage 2 – Motor finance DCA

• That £350 GAP premium is added to the finance agreement.
• Before 2021, many lenders allowed dealers to adjust the interest rate on the whole loan under a motor finance DCA – the higher the rate, the more commission the dealer received.
• End result. Not only is the customer paying an inflated price for GAP, they are also paying inflated interest on that inflated product.

In other words, the same GAP policy can be hit by discretionary commission twice:

• once in the GAP pricing itself (the dealer setting their own commission); and
• again in the interest rate on the finance agreement if that agreement also used a DCA.

All of this is to the clear detriment of the consumer:

• They don’t just overpay for the GAP insurance.
• They then overpay interest on that overpayment for years, effectively borrowing money to pay for commission for all parties involved.

Even with simple numbers, the double hit is obvious:

• If the “fair” net cost of GAP is £50 but you’re charged £350, that’s £300 extra upfront.
• If that £350 is then financed on a DCA-inflated rate instead of a fair one, you can easily add another hundred pounds or more in extra interest over the term, just on the GAP slice of the loan.

And that’s before you even ask whether the GAP cover itself ever comes close to paying out what was taken from you in premiums.

A systemic blind spot?

The FCA has belatedly:

• Banned DCAs in motor finance from 2021, recognising that linking dealer commission to interest rates created an obvious conflict and drove higher costs for customers.
• Forced GAP insurers to pause sales because these products were not offering fair value, particularly given low claims ratios and high distribution costs. It is clear however that the FCA failed to uncover DCAs within GAP.

But our evidence suggests a dangerous overlap that hasn’t yet had the spotlight it deserves:

GAP products designed and sold in a way that allows discretionary commission for the dealer, then financed on motor loans that also used discretionary commission on the interest rate.

The customer is never told:

• that their GAP premium may have been inflated by a discretionary commission structure; or
• that the inflated premium is then being used as fuel for another DCA in the motor finance agreement.

From the consumer’s perspective, this is one seamless transaction: “I bought a car on finance with GAP.”. Under the bonnet however, they may have been hit by DCAs twice on the same product.

What we’ve done – and what needs to happen next

We have:

• Gathered documentary evidence showing how some GAP products allowed dealers to set their own commission within caps.
• Submitted this evidence to the FCA, specifically highlighting the risk that GAP insurance has been affected by DCA at two distinct stages to consumers’ clear detriment.
• Submitted multiple complaints to lenders, dealerships and escalating these to the Financial Ombudsman Service for review. We’ve been advised that decisions will commence being provided in early 2026. The evidence is overwhelming.

In our view, the regulator now needs to:

1. Investigate the use of discretionary commission inside GAP distribution, not just in the motor finance interest rate.
2. Map the overlap and identify how many GAP policies, sold as add-ons, were rolled into finance agreements that also used DCAs.
3. Treat these double-hit customers as a priority category for redress, recognising that they may have suffered more harm than someone only affected at one level (which is bad enough in itself).

If the FCA is serious about fair value and Consumer Duty, it can’t ignore a scenario where:

• an add-on product it already views as poor value;
• is being used as commission fuel twice over;
• with the extra cost hidden inside complex chains of underwriters, administrators, distributors, sellers and lenders.

Because if GAP has been hit by DCA at two points in the journey, then drivers haven’t just been short-changed. They’ve been double-charged for the privilege.